Hosts: Tania Jaleel, Shambhavi Mehrotra
Producer: Paramveer Singh
You are a lazy procrastinator aren't you Tania?
It's a sad and shameful personality trait I know.
Hopefully you are not like this with your money matters?
I am somewhere in the middle
You do know it is a dangerous habit right, being lazy about your money… could be one of the reasons why your savings are not that high!
Hi everyone, I am SM and I am TJ, in this week's ET Wealth Wisdom podcast, we will take a look at 6 scenarios that is stopping you from amassing a corpus, along with how you should tackle these.
1. You buy depreciating assets
A depreciating asset is one which reduces in value over time. Even if you resell it, it will be for a sum that is lesser than the purchase price. If you think you are putting your money to good use while buying cars, bikes, laptops, furniture or expensive smartphones, you are not unless these are essential for your career.
What to do
Buy an asset that grows in value over time, say, a house, gold or stocks, and you will be saving. While you can't do without some essentials like a vehicle or phone, try not to take a loan for these or buy them for an extravagant amount.
2. You choose the wrong investing instruments
If you believe you are saving by keeping your money in a bank account or a recurring deposit, or buying a traditional insurance plan, you would be wrong. If your money fails to grow at a pace that does not beat inflation, you are, in fact, eroding your wealth over time, not saving it.
Secondly, if you know that the money is easily available to you for spending, say, in a bank account or at home, you will probably use it.
What to do
One, do not keep your money idling in a bank account or as cash at home. Two, make sure it is invested in an instrument that will help it grow faster than inflation of 6-7%.
3. You treat your wants as needs
While needs include the basics of existence, such has housing, food, health care, transportation and utilities, wants would comprise travel, eating out, entertainment and branded purchases, among others. While some might consider it a subjective choice, with one person's wants being another's needs, it is not too difficult to segregate these depending on your income. If you confuse the two, your budget will go haywire and you will have little left to save or invest.
What to do
A good way to keep your wants separate from your needs is to follow the 50-30-20 rule of budgeting. Here, 50% of income should be kept for your needs, 30% for wants, and the remaining 20% should be saved and invested.
4. You don't make any financial goals
A simple reason you are unable to save is that you are an indiscriminate spender. This also implies that you are working without a budget or do not plan for the future. So when you need funds for your financial goals, be it a small function for your child, his grand wedding, or even your own retirement, you will be left floundering. Consequently, you will either have to take an expensive personal loan, borrow from friends or family, or scrape up the amount by selling your assets.
What to do
Since you are not self-motivated to save, you will need to incentivise it by setting financial goals, both for the short and long term. Even if the goal is as small as taking a short vacation or buying your child a bike, get into the habit of planning and saving for it.
5. You don't automate your investments
You may be earning enough and may have the intent to save, but are probably tempted to spend just because the money lying in your bank account is easily accessible, whether it's through credit or debit cards.
What to do
The best way to overcome the temptation of spending is to automate your investments. This means that the amount you want to save leaves your account as soon as the salary is credited in it. Give standing instructions and ECS mandate to the bank regarding your investments, be it mutual fund SIPs or a recurring deposit. You could also automate the full payment of your credit card bill.
6. You finance your lifestyle with loans
As opposed to Baby Boomers and Gen X, who primarily took loans to build assets and fund their needs, millennials are not hampered by low salaries to finance their entire lifestyles through debt. Armed with credit cards, and personal, vehicle or home loans, and fuelled by the fear of missing out, they spend relentlessly not only on their needs, but wants as well.
What to do
Distinguish between good and bad debt, where the former can help you build assets, while the latter is only for depreciating assets or to fund your wants, with no returns. The most expensive among these, credit card debt and personal loans, should be avoided at all cost. Remember, all your loans, be it a home loan or personal loan, should not be more than 50% of your total income.
So, if you are just not saving up, know that it is not because you have a low salary. Poor spending habits, flawed notions about investing, or plain ignorance and laziness are more likely to be the reasons you are unable to build a big corpus.
On that note that will be all from us for this week. Come back next week for more wealth wisdom